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Production Theory – A key to a better World?


Since there is a fair chance that this article is going to be widely read – after all, procrastination drives you to do the craziest things during the exam week – I felt morally obliged to write on THE Topic of our era. In doing so, this article builds forth on Rostra’s long standing tradition of informing UvA students about pressing social and economic issues across the globe. This article uncovers the roots of many of these problems by addressing a major flaw in our thinking about production.

Roughly and briefly, economists argue that production (Y) results from the combination of capital and labour. Here capital stands for all the material ‘stuff’ – machinery, land, buildings etc. – and labour for the amount of human work effort. In general, the more labour (L) and capital (K) one has at its disposal, the more one can produce. Since it is impossible to explain real world differences in productivity in this way – e.g. between first and third world countries – economists usually add a third factor (A) to account for levels of technological and human development. This results in formulas like Y=AKL. Although economists have created many mathematically sophisticated variants of this model, none of them does justice to the complex nature of the real world production. Consequently, man spends its life maximizing a fictitious notion of production, rather than a notion that accounts for the true human value that is being created.

The miraculous riches of nature First of all, economists study production in isolation from the natural world. In reality, however, it is rather hard to draw a border between the economy and nature. Gowdy stressed this myopic attitude of modern economics towards the natural world: “Neoclassical theory sees the economy as being a self-contained system independent of the natural world. In reality the state of the economy depends on maintaining a flow of natural inputs into the system and maintaining the ability of the environment to assimilate waste products.” Spanish Economist José Manuel Naredo commented on the topic that it is curious “… that today the economic science keeps holding on to the fiction that the riches that ensure the movement of the economic system are being found in nature’s garden, without understanding by what miracle they got there.” Naredo further argues that this fiction can only be maintained by falsely separating the notion of production from the natural physical context in which it was originally studied. In other words, economists treat nature as an externality, whereas, in reality, it forms an inseparable part of the production process.

Who, What, How, Where and Why? A second flaw of production theory lies in its quantitative focus. By reducing the production process to a set of numbers on a spreadsheet, economists believe that they can find optimal levels of capital and labour. Following this logic, they spend hours maximizing virtual production levels. In reality, however, production is a fundamentally qualitative phenomenon. Basic questions like who does the production, what do we produce, where do we produce it, and why and how do we produce the things we produce, are rarely asked.

Precisely the answers to these questions determine the true societal value of the production process. As it stands, production theory does not distinguish between the experiences of a worker doing repetitive and unfulfilling tasks for 40 hours a week and a worker that ‘grows’ through stimulating work experiences. Neither does production theory distinguish between goods that we need and goods that we – believe to – want. Illustratively, whilst economic textbooks argue that advertisements play an important role in informing consumers about product characteristics, in reality, most advertisements are not informative at all. Instead, marketing professionals aim to convince consumers that they ‘want’ something, which they wouldn’t want otherwise. Sceptic? I dare you to sit through a 5 minute block of TV-commercials and argue the contrary. The negative consequences of this are twofold: not only do we waste time and resources producing ‘stuff’ that does not necessarily benefit us, but we also waste time and resources trying to persuade each other to believe that this ‘stuff’ will in fact benefit us.

Conclusion Economists’ disregard of the natural world supplies a false academic justification for economic activities that severely affect terrestrial life and, in so doing, seriously endanger the long-term survival of the economic system as we know it. Furthermore, the abstract nature of production theory neglects several fundamental aspects of production. This flawed way of thinking about production lies at the foundation of an economic system that maximizes an abstract notion of production rather than actual human well-being.

As long as our thinking about it remains flawed, we cannot create a society capable of maximizing long-term human happiness. Similarly, as long as our thinking remains flawed, we should not expect that we will manage to mitigate climate change, nor should we expect that we will manage to diminish societal dissatisfaction with modern life.

All in all, the need to integrate ecologic and social facets into production theory is pressing. Thesis topic, anyone?


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